buses in a municipal transit system have the characteristics listed. in order to minimize its annual operating expenses, when should the city replaces its buses if money can be borrowed at 8%? Year Maintenance cost salvage value 1 35000 60000 2 38000 55000 3 43000 45000 4 50000 25000 5 65000 15000

buses in a municipal transit system have the characteristics listed. in order to minimize its annual operating expenses, when should the city replaces its buses if money can be borrowed at 8%? Year Maintenance cost salvage value 1 35000 60000 2 38000 55000 3 43000 45000 4 50000 25000 5 65000 15000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A City is considering a replacement for its police radio. The benefits and costs of the replacement are shown below.  Purchase Cost: $7,200  Annual Savings: $1,500  Annual Costs: $300  Life: 15 years What is the replacement’s benefit-cost ratio if the effective annual interest rate is 8%?
The Waterloo Region Municipality plans to spend $272,500,000 for the installation of a light rail train service. Annual Maintenance and Operating costs are estimated at $3,025,000 per year. The installation of the light rail train service will reduce laneways for cars, reduce the number of parking spots, and disrupt local businesses during the construction phase. As a result, the dis-benefits of the light rail train service is estimated to be $1, 397, 500 per year. The lifetime of the rail service is indefinite and the cost of borrowing money for the Waterloo Region Municipality is 3.00% per year. What is the minimum annual benefit that the light rail train service must achieve in order to be a project worth pursuing?
A city wants to set aside enough money to build, operate, and renovate a sewage treatment plant in perpetuity. An engineering company estimates that the plant will cost an immediate $20 million to build and will require $5 million every 20 years to replace major equipment and $10 million every 50 years to pay for the major structural renovation. It is estimated that operation and maintenance costs will be $1.5 million every year. What amount will the city need to set aside? Interest earned on the annuity is 7%.
The city council of Morristown is considering the purchase of one new fire truck. The options are Truck X and Truck Y. The appropriate financial data are as follows (shown): The purchase is to be financed by money borrowed at 12% per year. Use this information to answer, What is the conventional B–C ratio for Truck X? (a) 1.41 (b) 0.87 (c) 1.64 (d) 1.10 (e) 1.15.
A city government is considering two types oftown-dump sanitary systems. Design A requires aninitial outlay of $400,000 with annual operating andmaintenance costs of $50,000 for the next 15 years;design B calls for an investment of $300,000 withannual operating and maintenance costs of $80,000per year for the next 15 years. Fee collections fromthe residents would again be $85,000 per year. Theinterest rate is 8%, and no salvage value is associatedwith either system.(a) Using the benefit–cost ratio BC(i), which systemshould be selected?M16_PARK9091_06_GE_C16.indd 901 10/22/15 5:22 PM902 Chapter 16 Economic Analysis in the Service SectIf a new design (design C), which requires aninitial outlay of $350,000 and annual operatingand maintenance costs of $65,000, is proposed,would your answer in part (a) change?
A Municipality needs a new fleet of busses. They have a choice between a diesel fuel powered fleet and a natural gas powered fleet. The Diesel fuel fleet has an initial cost of $50,000,000. The annual maintenance is $1,000,000 per year, each and every year of the 10 years life expectancy of the fleet. In addition, there will be a carbon emissions tax that starts at $250,000 in year 2, and increases by $250,000 each and every year after that. At the end of the ten years the busses can be sold for $5,000,000. The Natural Gas fleet can be purchased for $60,000,000. The annual maintenance is $800,000 per year. There is no carbon tax on the However, there is a 65% chance of a $5,000,000 one time “Special Maintenance cost at year 7. Because of certain toxic parts on the bus engines, the municipality will have to pay $5,000,000 and the end of the bus life to dispose of them. Use the present value approach to determine which fleet is more cost effective. The cost of money is 6%
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The City of Pfeiffer starts the year of 2017 with the general fund and an enterprise fund. The general fund has two activities: education and parks/recreation. For convenience, assume that the general fund holds $123,000 cash and a new school building costing $1 million. The city utilizes straight-line depreciation. The building has a 20-year life and no salvage value. The enterprise fund has $62,000 cash and a new $600,000 civic auditorium with a 30-year life and no salvage value. The enterprise fund monitors just one activity, the rental of the civic auditorium for entertainment and other cultural affairs.The following transactions for the city take place during 2017. Assume that the city’s fiscal year ends on December 31.a. Decides to build a municipal park and transfers $70,000 into a capital projects fund and immediately expends $20,000 for a piece of land. The creation of this fund and this transfer were made by the highest level of government authority.b. Borrows $110,000 cash…
The City of Pfeiffer starts the year of 2017 with the general fund and an enterprise fund. The general fund has two activities: education and parks/recreation. For convenience, assume that the general fund holds $123,000 cash and a new school building costing $1 million. The city utilizes straight-line depreciation. The building has a 20-year life and no salvage value. The enterprise fund has $62,000 cash and a new $600,000 civic auditorium with a 30-year life and no salvage value. The enterprise fund monitors just one activity, the rental of the civic auditorium for entertainment and other cultural affairs. The following transactions for the city take place during 2017. Assume that the city’s fiscal year ends on December 31. Decides to build a municipal park and transfers $70,000 into a capital projects fund and immediately expends $20,000 for a piece of land. The creation of this fund and this transfer were made by the highest level of government authority. Borrows $110,000 cash…